| Kangaro Industries Limited | ||||||
| Ratings reaffirmed at 'CRISIL AA-/Stable/CRISIL A1+' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ratings on the bank facilities of Kangaro Industries Ltd (KIL; part of the Kangaro group) at ‘CRISIL AA-/Stable/CRISIL A1+’.
The ratings continue to reflect an established position in the stationery business, strong operating efficiency, extensive geographical diversification, and a robust financial risk profile. These strengths are partially offset by working capital-intensive operations and product concentration in revenue.
The nationwide lockdown announced by the central government in March 2020 to contain the spread of the Covid-19 pandemic impacted the group, resulting in lower revenue in the first quarter of fiscal 2021. However, performance has improved since then, as indicated by estimated net sales of above Rs 449 crore for fiscal 2021. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of KIL and its associate concerns, Kanin India (KI), Kangaro Industries (Regd), Munix India Pvt Ltd (Munix), and KGOC Global LLP. That's because all these entities, collectively referred to as the Kangaro group, have common promoters, management, and marketing network, and are in the same business. They also have the same finance team and banker.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Established position in the stationery business and strong operating efficiency: The group has been in the stationery business since 1959, and has established its Kangaro brand. Products include staplers, staple removers, staples, paper punches, and index file clips. Over the years, it has integrated backwards by setting up wire-drawing machines in KIL, and establishing the Kangaro Tool for designing and manufacturing equipment, such as moulds and tools, required for the manufacture of the end products.
Strong geographical diversification The group has a strong marketing network across India. Also, exports accounted for around 43% of sales in fiscal 2021. Products are supplied across the globe with a presence in South-East Asia, Europe, Indonesia, the Middle East, Latin America, and other regions. It also manufactures products for brands based in the US, Japan and Europe, and plans to further penetrate these markets under its own brand, though gradually. In the medium term, the group should continue to innovate and make products to suit local users, and generate regular demand.
Strong financial risk profile The total outside liabilities to tangible networth (TOLTNW) ratio was low, the networth healthy, and the debt protection metrics robust. The TOLTNW ratio is estimated at 0.19 time as on March 31, 2021, and the interest coverage ratio at 205 times for fiscal 2021. The group has planned moderate capital expenditure (capex), to be funded through internal cash accrual. The financial risk profile should remain strong over the medium term driven by steady accretion to reserves and absence of any debt-funded capex plans.
Weaknesses: Large working capital requirement: Gross current assets are estimated to have been high at around 245 days as on March 31, 2021 (200-230 days in the earlier three fiscals), driven by estimated debtors of 80 days and inventory of 105 days. Inventory is expected to remain high due to increase in the number of products and capacity. Additionally, the group has a policy of maintaining raw material inventory of around 60 days.
Product concentration in revenue Staples and staplers are the flagship products and are manufactured in all the group concerns. These products accounted for 70-75% of total revenue for fiscal 2021; the contribution was at a similar level previously too. The management’s focus on diversification by adding new products such as knives, and enhancing capacities for scissors and stitch wire, should reduce the contribution from staples and staplers over medium term. |
Liquidity: Strong Cash accrual is expected to be healthy against nil debt repayment obligation over the medium term. KIL and KI together are expected to have net cash accrual of above Rs 55 crore per fiscal over this period, which would be more than sufficient to meet incremental working capital and modest capex needs in the absence of any debt obligation. The current ratio was healthy at above 5 times as on March 31, 2021, and is expected at above 5.5 times over the medium term. Utilisation of bank lines has remained low in the 13 months through February 2021. Liquidity is also supported by the healthy cash and bank balance and liquid investments of above Rs 50 crore as on March 31, 2021, in KIL and KI. |
Outlook Stable The Kangaro group should continue to benefit over the medium term from its established position in the stationery industry, which would support healthy revenue growth. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Group KIL was incorporated in 1994 as Kangaro Wires Pvt Ltd to manufacture staple pins; the name was changed in fiscal 1996. The company manufactures staples for multiple wire machines.
Kangaro Industries (Regd) was set up in 1959 by the late Mr Jankidas Jain as a proprietorship concern to manufacture staplers and paper punches. It was reconstituted as a partnership firm with the inclusion of Mr Arihant Jain in 1963.
KI, set up in 1990, manufactures staplers, staple removers and gun tackers.
Based in Nalagarh, Himachal Pradesh, Munix manufactures staplers and was set up to avail of tax benefits. |
Key Financial Indicators: Standalone
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| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | |||
| Facility | Name of Lender | Amount (Rs.Crore) | Rating |
| Cash Credit | Canara Bank | 21 | CRISIL AA-/Stable |
| Foreign Bill Discounting | Canara Bank | 1 | CRISIL A1+ |
| Letter of Credit | Canara Bank | 1 | CRISIL A1+ |
| Proposed Long Term Bank Loan Facility | Not Applicable | 27.5 | CRISIL AA-/Stable |
| Total | - | 50.5 | - |
This Annexure has been updated on 17-Aug-2021 in line with the lender-wise facility details as on 2-Aug-2021 received from the rated entity.
Criteria Details
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